Gold and silver managed to hold a narrow range in overnight trading, with gold advancing slightly ahead of silver.

In early trading yesterday gold was off $2.89 to $1,656.21, within a few cents of where we were yesterday at this time. Silver was down $0.09 to $31.56, bringing the silver/gold ratio to 52.5, the highest since I’ve started tracking it on a daily basis.

When it comes to volatility, the precious metals markets have yet to settle down and track to fundamentals. The dollar weakened against a basket of other currencies, including the euro, and normally that means gold prices would advance, but not lately.

Crude oil, platinum, copper and palladium all tilted higher, as one would expect, leaving gold and silver out there alone to dip in the face of fundamentals that should be driving them higher.

Taken as a whole this situation would seem to be a bullish indicator for silver. As a metal with numerous industrial uses, it’s typical to see silver moving along with platinum and palladium, two other industrial precious metals. With the price of silver discounted relative to gold, I can’t help but think silver is due for a run up.

I noticed one or two retail vendors advertising JM numbered 1 oz silver bars for as little as a $1.49 over spot in unlimited quantities. Johnson Matthey has a good name in the industry and its silver is usually easy to sell. JM was only minting the larger silver bullion products for a long time; it’s nice to see the 1 oz bars turning up in the market again.

There’s also a bit of interesting news from the Royal Canadian Mint which is enlisting programmers in a contest to come up with a digital currency, called MintChip, for small purchases under $20. That may not sound like much until you consider the market for small transactions is somewhere in the neighborhood of $98 billion dollars.

Hopefully the MintChip contest will finally spark the idea for someone to create a digital currency backed by, and conveniently exchangeable for, physical gold. Several efforts to develop digital currencies have achieved varying degrees of success, but so far no group has successfully closed the loop with backing digital medium of exchange with an actual commodity.

Such a digital system would make gold conveniently fungible and easier to transfer. It’s likely the legalities are preventing such a development as most governments would consider such a system currency.